Understand the superannuation laws and what happens when these laws are breached, prior to SMSF set up
SMSFs are governed by the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994. The Australian Tax Office (ATO) regulates SMSFs ensuring their compliance with the superannuation laws and the Income Tax Assessment Act 1936 and 1997.
SMSFs must comply with all aspects of the governing laws to ensure they are eligible for the appropriate tax concessions and eligible to accept contributions and/or rollovers.
An SMSF’s independent auditor will audit the SMSF annually to ensure it continues to comply with the governing laws and incidents of non-compliance will be documented in their audit report to the trustees of the SMSF and will be reported to the ATO through an auditor contravention report.
Serious contraventions of the governing laws and/or continued non-compliance with the governing laws may result in the following:
· The SMSF becoming a non-complying SMSF resulting in the SMSF no longer qualifying for the concessional tax rate and being taxed at the highest marginal tax rate.
· ATO disqualification of the SMSF’s trustees, meaning that they are no longer act as a trustee of an SMSF.
· Administrative penalties may be imposed by the ATO, these penalties must be paid for by the trustees personally and cannot be paid from the SMSF.
· The ATO freezing the SMSF’s assets
· The ATO may apply through the courts for civil or criminal penalties to be imposed.
It is of the upmost importance that the trustees of an SMSF ensure on-going compliance with superannuation and tax laws. Trustees of an SMSF can obtain professional advice from appropriately qualified professionals such as accountants, tax advisors and SMSF auditors to aid in them meeting trustee obligations and responsibilities.
An SMSF’s appointed auditor will assess if the SMSF trustee(s) has complied with the following key provisions under the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994.
Section 17A of the Superannuation Industry (Supervision) Act 1993:
The fund must meet the definition of an SMSF
Section 35AE of the Superannuation Industry (Supervision) Act 1993:
The trustees must keep and maintain accounting records for a minimum of five years
Section 35B of the Superannuation Industry (Supervision) Act 1993:
The trustees must prepare, sign and retain accounts and statements
Section 35C(2) of the Superannuation Industry (Supervision) Act 1993:
The trustees must provide the auditor with the necessary documents to complete the audit in a timely and professional manner; and within 14 days of a written request from the auditor
Section 62 of the Superannuation Industry (Supervision) Act 1993:
The fund must be maintained for the sole purpose of providing benefits to any or all of the following:
· fund members upon their retirement
· fund members upon reaching a prescribed age
· the dependents of a fund member in the case of the member’s death before retirement
Section 65 of the Superannuation Industry (Supervision) Act 1993:
The trustees must not loan monies or provide financial assistance to any member or relative at any time during the financial year
Section 66 of the Superannuation Industry (Supervision) Act 1993:
The trustees must not acquire any assets (not listed as an exception) from any member or related party of the fund
Section 67 of the Superannuation Industry (Supervision) Act 1993:
The trustees of the fund must not borrow any money or maintain an existing borrowing (not listed as an exception)
Section 67A-67B of the Superannuation Industry (Supervision) Act 1993:
The fund must comply with limited recourse borrowing arrangement rules when borrowing to purchase a single acquirable asset or replacement assets (not listed as an exception to the borrowing rules)
Section 82-85 of the Superannuation Industry (Supervision) Act 1993:
The trustees must comply with the in-house asset rules
Section 103 of the Superannuation Industry (Supervision) Act 1993:
The trustees must keep minutes of all meetings and retain the minutes for a minimum of 10 years
Section 104 of the Superannuation Industry (Superannution) Act 1993:
The trustees must keep up to date records of all trustee or director of corporate trustee changes and trustee consents for a minimum of 10 years
Section 104A of the Superannuation Industry (Superannuation) Act 1993:
Trustees who became a trustee on or after 1 July 2007 must sign and retain a trustee declaration
Section 105 of the Superannuation Industry (Supervision) Act 1993:
The trustees must ensure that copies of all member or beneficiary reports are kept for a minimum of 10 years
Section 109 of the Superannuation Industry (Supervision) Act 1993:
All investment transactions must be made and maintained at arms-length – that is, purchase, sale price and income from an asset reflects a true market value/rate of return
Section 126K of the Superannuation Industry (Supervision) Act 1993:
A disqualified person cannot be a trustee, investment manager or custodian of a superannuation fund
Sub Regulation 1.06 (9A) of the Superannuation Industry (Supervision) Regulations 1994:
Pension payments must be made at least annually, and must be at least the amount calculated under Schedule 7
Regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994
Trustees must formulate, regularly review and give effect to an investment strategy for the fund
Regulation 4.09A of the Superannuation Industry (Supervision) Regulations 1994:
The assets of the SMSF must be held separately from any assets held by the trustee personally or by a standard employer sponsor or an associate of the standard employer sponsor
Regulation 5.03 of the Superannuation Industry (Supervision) Regulations 1994:
Investment returns must be allocated to members in a manner that is fair and reasonable
Regulation 5.08 of the Superannuation Industry (Supervision) Regulations 1994:
Member minimum benefits must be maintained in the fund until transferred, rolled over, allotted (to the member’s spouse) or cashed out in a permitted fashion
Regulation 6.17 of the Superannuation Industry (Supervision) Regulations 1994:
Payments of member benefits must be made in accordance with Part 6 or Part 7A of the regulations and be permitted by the trust deed
Regulation 7.04 of the Superannuation Industry (Supervision) Regulations 1994:
Contributions can only be accepted in accordance with the applicable rules for the year
Regulation 8.02B of the Superannuation Industry (Supervision) Regulations 1994:
When preparing accounts and statements required by subsection 35B(1) of SISA, an asset must be valued at its market value
Regulation 13.12 of the Superannuation Industry (Supervision) Regulations 1994:
Trustees must not recognise an assignment of a super interest of a member or beneficiary
Regulation 13.13 of the Superannuation Industry (Supervision) Regulations 1994:
Trustees must not recognise a charge over or in relation to a member’s benefits
Regulation 13.14 of the Superannuation Industry (Supervision) Regulations 1994:
Trustees must not give a charge over, or in relation to, an asset of the fund
Regulation 13.18AA of the Superannuation Industry (Supervision) Regulations 1994
Investments in collectables and personal use assets must be maintained in accordance with prescribed rules.
